The Customer Experience

Management Concept

CEM and the Loyalty Curve

The notion that customer experiences can be strategically managed is consistent with the so-called "loyalty effect", which says that the longer customers stay with a company the more profitable they become.

Initially, customers do not reach positive profitability until they pay off their cost of acquisition, which in some industries may take a year or more. After that the profitability of individual customers tends to grow year after year. The major dynamic driving this loyalty/profit curve is the fact that long-term customers have more opportunities to learn about the company (and vice versa), so the relationship can become increasingly efficient. Long-term customers are cheaper to maintain because they tend to use support services less and to register fewer complaints, adjusting their expectations to a range that is realistic with the company's offerings and capabilities. They may also make more frequent purchases and buy higher-ticket items as their trust in the company and knowledge of its offerings grow. Furthermore, they are more likely to attract new customers to the company through positive word-of-mouth endorsements.

But the benefits of loyalty do not occur simply because customers have more experiences with the company over time. To move up the loyalty/profit curve they need to have the types of experiences that will add to their knowledge and influence their behavior. Some experiences impart little information, and some may even contradict information learned earlier. The proportion of experiences that positively influences a customer's relationship and profitability may be small or large, and these experiences may be random or planned. The goal of Customer Experience Management is to move customers up the loyalty/profit curve faster by increasing the proportion of experiences that affect behavior in a positive manner.